Illinois homeowners are facing significant challenges amid a legal upheaval that has emerged after a recent U.S. Supreme Court ruling deemed certain practices surrounding property tax sales unconstitutional. The ruling, which took effect in 2023, has cast a spotlight on a system that has allowed private investors to claim equity from homeowners who fall behind on their property taxes, raising concerns about the financial ramifications for counties.
For many years, county treasurers across Illinois could collect unpaid property taxes by selling the debts to private entities. Homeowners who failed to pay back these debts could lose their entire homes, despite often owing only a small fraction of their home’s value. A significant case arose when a Minnesota homeowner challenged her local county’s actions, claiming they violated her Fifth Amendment rights by taking her home and profiting from her debt. After the ruling, many states hurried to modify their laws to prevent similar legal challenges, but Illinois has encountered difficulties due to competing interests within the state’s legislature.
A study by researchers in California revealed the extent of the problem, estimating that from 2014 to 2021, investors in Illinois profited by $148 million beyond what they were owed when purchasing unpaid tax debts. In Cook County, Treasurer Maria Pappas now faces multiple lawsuits, including a class-action suit claiming that as many as 1,700 homeowners have improperly lost their home equity due to tax sales.
In response to this crisis, a federal judge has permitted a lawsuit by suburban homeowners against officials in eight counties, arguing they have collectively lost millions from tax sale seizures. Meanwhile, some of those officials have turned around to sue the state, asserting that it has left them vulnerable due to the lack of reforms related to tax sales.
Legal experts and tax attorneys met recently to discuss the unfolding situation, showing concern over how rapidly the landscape is changing. Terry Carter, an attorney with extensive experience in tax deed litigation, expressed doubt about the potential for timely reforms, stating frustration over the lack of progress.
Once homeowners lose their properties through these tax sales, their options for recourse are limited. They can attempt to sue the county treasurer, but even successful litigants often face protracted waits for compensation. According to reports, those who gained judgments from Cook County’s indemnity fund had previously endured waits averaging seven years for their payments, with the fund being largely insolvent. The situation has since worsened, as more than 270 households are currently awaiting payments that take even longer than before.
Pappas has recognized that the slow processing of these claims can significantly affect families who rely heavily on their home equity. Notably, the fund now owes over $33 million to affected homeowners, further compounding the issue. As the pressure mounts for reform, a proposed overhaul of the tax sale system has gained some traction.
New proposals include auctioning properties instead of merely selling delinquent tax bills, as well as creating a state equity fund to assist homeowners rather than depending solely on county funding for indemnity judgments. However, tax buyers, who have historically resisted these reforms, argue that they perform a crucial role in ensuring tax revenue remains intact even when homeowners default.
Lawmakers have attempted to address the issue but have struggled to find consensus. Recently, a bill was passed to postpone the county’s fall tax sale until March. However, experts warn that such delays will not mitigate the existing legal issues. “No matter what reforms come now, they won’t undo the harm already done,” remarked one attorney representing plaintiffs in ongoing lawsuits.
The dilemma is exemplified in the story of Frank Moore, a resident of Grand Crossing, who faced an unexpected tax sale after a mix-up involving his properties. After battling through legal obstacles, he was forced to sell his rightful judgment to the very company that had acquired his tax debt, further highlighting the desperation many homeowners face in the current environment.
As reform efforts continue to be debated ahead of the legislative veto session this fall, the critical need for change is evident. Legislative discussions are underway to establish a new framework that could better serve homeowners and protect their equity in the future. However, the real challenge lies in whether all parties can converge on a plan that addresses the nuances of the situation before the next tax sale takes place.
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